Who’s the Real Head of the Consumer Watchdog Agency? A Legal Fight, Explained

WASHINGTON — A politically charged legal dispute has engulfed the Consumer Financial Protection Bureau, with two officials each claiming to be its rightful acting director. The fight is raising questions about the scope and limits of President Trump’s power to impose control over an agency that Congress created to regulate the financial industry with an unusual degree of independence from political interference.

Last week, the bureau’s director, Richard Cordray, an Obama appointee, resigned and told the staff that he had appointed his chief of staff, Leandra English, to be the deputy director, which he said made her the agency’s acting director until a permanent successor was confirmed. But the White House said Mr. Trump was instead immediately installing his budget director, Mick Mulvaney, as acting head. Mr. Mulvaney denounced the agency in 2014 as a “joke” and suggested he would like to “get rid of it.”

On Sunday, Ms. English sued Mr. Trump and Mr. Mulvaney “in his capacity as the person claiming to be acting director” of the bureau. On Monday, Mr. Mulvaney showed up at the bureau bearing doughnuts and took over the director’s office, instructing agency staff to ignore Ms. English’s directions.

While there are several legal issues, the dispute probably boils down to how to interpret an ambiguous clash between two statutes. Congress created the Consumer Financial Protection Bureau in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It said that the deputy director, who is appointed by the director, “shall” serve as acting director if that position becomes open.

But a dozen years earlier, Congress had enacted another, more general statute, the Federal Vacancies Reform Act, which created a different system for temporarily filling positions that normally require Senate confirmation. Its default rule is also that an agency’s deputy temporarily takes over as acting head. But it also gives presidents the option of instead appointing as acting head any other executive branch official who has already undergone Senate confirmation, as Mr. Mulvaney has.

Complicating matters, the Vacancies Reform Act says its procedures are the “exclusive means” of temporarily filling a position unless another statute expressly designates an acting successor. Since Dodd-Frank does just that, the question is whether the 2010 law superseded the Vacancies Reform Act for the purpose of the Consumer Financial Protection Bureau. If it did, Ms. English is acting director. If it did not, and both mechanisms are instead available as options, Mr. Mulvaney is acting director.

In an eight-page memo signed Saturday, Steven Engel, whom Mr. Trump recently appointed as head of the Justice Department’s Office of Legal Counsel, concluded that Congress intended for the Vacancies Reform Act mechanism to remain available to Mr. Trump as an “alternative procedure” for temporarily filling the position of bureau director. His argument placed heavy emphasis on a line in a 1998 report that a Senate committee wrote when it passed the Vacancies Reform Act legislation. The report discussed how the bill would apply to positions with existing statutes governing how they could be temporarily filled, and it used the “alternative procedure” phrase that Mr. Engel invoked.

The general counsel of the bureau, Mary McLeod, who previously served as the acting top State Department lawyer during the Obama administration, issued a shorter memo concurring with Mr. Engel’s analysis and instructing the bureau staff to treat Mr. Mulvaney as the rightful director. And the White House cited on Monday a 2016 ruling by a federal appeals court that upheld the temporary appointment by President Barack Obama of an official at another agency under the Vacancies Reform Act, even though a statute set up a different means for temporarily filling the position in question.

“The law is clear: Director Mulvaney is the acting director” of the bureau, said the White House press secretary, Sarah Huckabee Sanders.

Ms. English’s lawsuit argued that Congress intended to prevent a president from installing a temporary agency director without Senate confirmation as part of its broader effort to shield the bureau from undue political interference. “Conscious of the regulatory failures that had fueled the 2008 crisis, Congress took pains to ensure that the new agency would be independent enough to resist capture by powerful financial interests and fulfill its critical responsibilities to American consumers,” the lawsuit stated.

Separately, several legal scholars have portrayed Mr. Engel’s analysis as flawed. In a lengthy blog post, Martin Lederman, a Georgetown University law professor who was a deputy in the Office of Legal Counsel in the Obama administration, argued that the key line in the 1998 Senate committee report did not mean what Mr. Engel maintained it did.

In context, he wrote, the line Mr. Engel cited was addressing statutes that say an administration “may” temporarily fill various vacancies in particular ways — a word that leaves open the possibility that a president may also legitimately fill such vacancies with an alternative procedure, like the Vacancies Reform Act mechanism. By contrast, he noted, the Dodd-Frank provision says the Consumer Financial Protection Bureau deputy “shall” become acting head, a word that signals it is the exclusive means. (The 2016 appeals court case also discussed a statute that laid out how a temporary replacement officer may be appointed, not how one “shall” be.)

Mr. Lederman wrote that the Office of Legal Counsel’s conclusion was “at the very least contestable,” adding: “A reviewing court might agree with it — but it might not.”